Eric Scharaga
Founder, Damen Capital Fund
Private lender and direct land note buyer serving land investors and note holders nationwide. Featured on REtipster, Legends of Land, and Land Investing Online. LinkedIn →
101 terms from land loans, seller financing, note buying, and note hypothecation, defined in plain words by a lender who uses them every day. Each one links to the page where it matters.
Language in a note that lets the lender demand the whole balance at once after a default instead of waiting for each payment to come due. Every land note and land loan should have one; without it you can only sue for the missed payments.
A loan that pays for the purchase of a property at closing. Damen Capital Fund's land loans are acquisition loans: the money goes to the seller, not to the borrower. Compare cash out refinance. Land acquisition loans →
The percentage of collateral value a lender will fund. On a land loan it is the loan to value. On a note hypothecation it is the loan as a percentage of the notes' unpaid balance. Note hypothecation loans →
A separate sheet of paper attached to a promissory note that carries an endorsement when there is no room on the note itself. Under the UCC it is treated as part of the note. Used when a note is sold or pledged. Collateral assignment explained →
Paying a loan down over time through scheduled payments that cover interest and principal. A fully amortized note has a zero balance at the end. Most seller financed land notes amortize over 5 to 15 years.
A licensed appraiser's written opinion of value. Slow and expensive on vacant land because comparable sales are thin. Damen sizes land loans from recent county sales instead and does not require one.
A recorded document that transfers a mortgage or deed of trust from one holder to another. An absolute assignment is a sale. A collateral assignment is a pledge for a loan. Absolute vs collateral assignment →
A letter from a custodian confirming it holds original loan documents on behalf of a lender. Under the UCC that acknowledgment counts as the lender's possession of the note.
A large final payment that pays off whatever balance is left when a loan matures. Damen's interest only land loans balloon at the end of the two year term; the borrower sells or refinances to pay it.
In a 1031 exchange, cash or debt relief the exchanger receives that is not reinvested in the replacement property. Boot is taxable. New debt on the replacement parcel is not boot. 1031 exchange bridge loans →
In a loan secured by a pool of notes, the eligible unpaid balance times the advance rate. It sets how much can be outstanding. Recalculated when notes pay off, default, or are added. Note hypothecation loans →
A short term loan that gets a buyer to closing while a slower, cheaper loan is arranged. Damen's land and farmland loans are bridges with a two year term. Bridge loans for land →
A loan used for a business or investment, not for personal, family, or household use. Consumer lending laws do not apply. Damen lends for business purpose only, to entities.
A note seller's obligation to repurchase a note from the buyer if certain things go wrong, such as an early default or a document defect. Common in note purchase agreements and participations.
A loan against property you already own that puts money in your pocket. Damen's land loans do not do this; they fund purchases only. Storage loans are the exception. Outdoor storage financing →
The recorded history of who owned a parcel and who held the liens on it. A lender or note buyer needs an unbroken chain from the original mortgage to the current holder.
In attorney closing states such as South Carolina and Georgia, the lawyer who handles the closing in place of a title company. South Carolina land notes and loans →
Two lenders funding one loan together, each on the recorded mortgage. Damen's investor program works this way: the investor is on the lien, not in a fund. Co-lend with Damen →
Property pledged to secure a loan. On a land loan, the land. On a note hypothecation, the notes.
A recorded document in which a note holder pledges a note and its mortgage to a lender as security for a loan while keeping ownership. Released when the loan is paid. Collateral assignment explained →
See land contract.
Securing one loan with two properties: the one being bought and one the borrower already owns. Lets Damen fund 100% of a land purchase. One extra property only. Cross collateral land loans →
The time a borrower has to fix a default before the lender can act. On Damen's note loans, 10 business days to pay down or pledge another note when the advance rate test is broken.
A third party that holds original notes and mortgages for a lender. See bailee letter.
The borrower deeds the property to the lender voluntarily to settle the debt, skipping foreclosure. Faster and cheaper for both sides when there are no other liens.
A security instrument used instead of a mortgage in many states. Title is held by a trustee who can sell the property at a non judicial foreclosure sale if the borrower defaults. Faster than judicial foreclosure.
A failure to do what the loan documents require. Missing a payment is the usual one. Not paying taxes, letting insurance lapse, or selling the collateral without consent are defaults too.
A higher interest rate that applies after a default, spelled out in the note.
The amount still owed after the collateral is sold and the sale price falls short of the debt. Some states let the lender sue for it; some do not.
The gap between a note's unpaid balance and the price a buyer pays for it. A note bought at 85% of balance carries a 15% discount. The discount is how the buyer gets a yield above the note rate. What is my land note worth →
Federal rules that apply when a seller finances a home to a consumer. They do not apply to vacant land with no dwelling. Sellers of one property a year and three or fewer a year have exemptions. Seller financing guide →
Cash the buyer pays at closing. On a seller financed land sale, the down payment is the seller's first line of defense and the first thing a note buyer looks at. 10% or more is standard. Note buying criteria →
Language in a mortgage that lets the lender call the loan if the property is sold. Keeps a buyer from taking over a note without the holder's consent.
The note holder's signature transferring a note, written on the note or an allonge. An endorsement in blank makes the note payable to whoever holds it. A special endorsement names the new holder.
Government approvals that let land be developed: zoning changes, plat approval, permits. Damen does not fund entitlement work, only the purchase of the land. Subdivide financing →
A signed statement from a borrower confirming the loan balance, terms, and that there are no defenses or disputes. Note buyers and lenders request one before closing on a note.
A fee paid when a loan is paid off, set as a percentage of the loan. Damen charges 2% at exit instead of points up front. Real costs of private land loans →
Adding time to a loan's term, usually for a fee. Not a right; the lender decides.
The legal process a lender uses to take and sell collateral after a default. Judicial foreclosure goes through court and takes months to years. Non judicial foreclosure under a deed of trust takes a few months.
Direct part ownership of a note or loan, with the investor's name on the recorded assignment. Different from a participation, where the lead lender stays on title. Fractional note investing →
A short term loan from a private lender secured by real estate and sized on the collateral, not the borrower's credit. Damen's land loans are hard money in that sense, without the broker layer. Hard money loans for land →
Pledging an asset as collateral for a loan while keeping ownership of it. In note investing, a loan against a note or a pool of notes. Also called note on note financing. Note hypothecation loans →
A sale where the seller receives at least one payment after the year of sale. Seller financing is an installment sale. The seller reports gain as payments come in under IRC section 453.
A payment structure where each payment covers interest and none of the principal. The balance stays flat until payoff. Damen's land loans are interest only.
Loan funds set aside at closing to make the interest payments for a period. Used on farmland loans where income arrives at harvest rather than monthly. Farmland bridge loans →
A note buyer's total investment in a note divided by the value of the property behind it. Damen's maximum is 65%. The note buyer's version of loan to value. Note buying criteria →
Foreclosure through a court case. Required in states like Florida, Illinois, Ohio, and South Carolina. Slower and more expensive than non judicial foreclosure, which is why access and resale value matter more there.
A seller financing structure where the seller keeps the deed until the buyer finishes paying. Also called a contract for deed or installment land contract. Harder to sell, harder to borrow against, and messier on default than a note and deed of trust. Why to avoid land contracts →
A promissory note secured by vacant land, created when a seller finances the sale. The seller holds the note and collects payments. It can be kept, sold, or borrowed against. What is a land note →
A recorded right to reach a parcel from a public road, by frontage or easement. Land without it is nearly unsellable and Damen will not lend on it or buy a note on it.
Title insurance that protects the lender's lien position. Required on Damen loans and note purchases. Why a land investor needs a lender's title policy →
The order in which liens get paid when a property is sold or foreclosed. First position is paid first. Damen lends and buys notes in first position only.
The loan amount divided by the property value. Damen's land loans go to 65% LTV, or 100% of the purchase price with cross collateral. Land loan program →
A controlled bank account that receives loan payments before the borrower can touch them. Used in larger note portfolio loans. At land note scale the servicer's remittance instructions do the same job.
A sworn statement that an original note has been lost and cannot be found, used to enforce the note anyway. Weak in many states. Note buyers and lenders want the original.
The date a loan's full balance is due.
The least interest a borrower pays even if the loan is paid off early. Damen's land loans carry five months of minimum interest.
A recorded lien on real estate that secures a note. In mortgage states the lender forecloses through court. Compare deed of trust.
Foreclosure without a court case, done by a trustee under a deed of trust's power of sale. Texas, Georgia, Tennessee, North Carolina, and Virginia allow it. Usually two to four months.
A note whose borrower has stopped paying. Damen buys them at a deeper discount than performing notes. Sell your land note →
See promissory note.
A company or investor that purchases seller financed notes for cash. Damen Capital Fund buys land notes at 80 to 90% of balance. Who buys land notes →
A letter score for a note's quality based on down payment, payment history, rate, term, and the property. Better grades sell for more. Grade my note →
See hypothecation. Note hypothecation loans →
A spreadsheet listing the notes in a pool: balance, rate, payment, maturity, property, and payment history. The first thing a note buyer or lender asks for.
The seller acts as the bank: the buyer pays a down payment and makes monthly payments to the seller under a note. Same thing as seller financing. Sell land with owner financing →
Buying a set number of a note's future payments instead of the whole note. The seller gets cash now and the note back after those payments are made. Partial note purchases →
Releasing one lot or parcel from a mortgage that covers several, in exchange for a payment. How a subdivider sells lots one at a time while the loan stays on the rest. How partial release clauses work →
Selling a share of a loan's cash flow to another investor by contract while the lead lender keeps title and control. Usually unrecorded. Compare fractional interest and co-lending. What is a loan participation →
A lender's written statement of the exact amount needed to pay a loan off on a given date, including per diem interest. Request a payoff →
The person making payments on a note. On a land note, the land buyer.
Interest for one day. Used to compute a payoff between payment dates.
The legal steps that make a lender's security interest good against other creditors. For a note: possession of the original and a UCC-1 filing. For real estate: recording the mortgage. How a note pledge is perfected →
A note whose borrower is current on payments.
A promise by an individual to repay a loan made to their entity if the entity does not.
The recorded map that divides a tract into lots. Recording the plat is what turns one parcel into many for sale. Subdivide financing →
To give a lender a security interest in an asset. On a note hypothecation the notes are pledged.
Fees charged as a percentage of the loan at closing. One point is 1%. Damen charges no points at purchase.
A fee for paying a loan off early. Damen's land loans have none beyond the five month minimum interest.
The amount borrowed, or the amount still owed, not counting interest.
A non bank lender using its own or its investors' money. Faster and more flexible than a bank, at a higher rate. Private land lender vs bank →
The borrower's written promise to repay a loan on stated terms. The note is the debt; the mortgage or deed of trust is what secures it. What is a land note →
The lender's right to collect from the borrower personally, not just from the collateral. Damen's loans are recourse loans.
In some states, a window after a foreclosure sale in which the borrower can pay the debt and get the property back. Lengthens the time before a lender or note buyer has clean title.
A recorded document that removes a lien after the loan is paid. On a note hypothecation, the release of the collateral assignment, not a satisfaction of the underlying mortgage.
The length of a note's documented payment history. More seasoning means a smaller discount. Damen buys notes with no seasoning. Sell your land note →
A seller financing arrangement where the note buyer commits to buy the note before the land sale closes, so the seller walks away with cash the day of sale. Sell your note at closing →
See owner financing. Seller financing guide →
A licensed company that collects note payments, tracks balances, sends statements and 1098s, and forwards money to the note holder. Damen requires a third party servicer on every note it buys or lends against.
A monthly charge for servicing a loan or note. Damen's is $25 a month on land loans.
Split one parcel into several lots for separate sale. Requires a recorded plat and usually county approval. Subdivide financing →
Swapping one pledged note for another of equal or better quality, at the lender's option, when a pledged note pays off. Note hypothecation loans →
The length of a loan. Damen's land loans have a two year term.
The company that searches title, issues title insurance, and handles the closing in most states.
A public filing with the Secretary of State that gives notice of a lender's security interest in personal property, including promissory notes. Filed on note hypothecation loans and terminated with a UCC-3 at payoff. Collateral assignment explained →
What is still owed on a note or loan, not counting interest. The number a note buyer prices from. Note value calculator →
The order in which collected money is paid out. On a note portfolio loan: the lender's interest first, then fees, then principal paydown, then the note holder. Note hypothecation loans →
Land regulated under the Clean Water Act that cannot be built on or filled without federal permits. Damen does not lend on or buy notes secured by wetlands dominated parcels.
A seller financing structure where the seller's new note wraps around an existing loan the seller keeps paying. Risky for both sides when the underlying loan has a due on sale clause. Wraparound mortgages for vacant land →
The annual return on the money invested, expressed as a percentage. Buying a 10% note at a discount produces a yield above 10%. What is my land note worth →
A tax deferred swap of one investment property for another under IRC section 1031. Forty five days to identify, 180 days to close. Farmland and vacant land qualify. 1031 exchange bridge loans →
Both secure a note with real estate. A mortgage has two parties and is foreclosed through court in most states. A deed of trust adds a trustee who can sell the property without a court case, which makes foreclosure faster. Which one you use depends on the state.
Investment to value: the note buyer's total investment in a note divided by the value of the property behind it. It is the note buyer's version of loan to value. Damen Capital Fund's maximum is 65%.
A loan secured by notes you own. You pledge the notes and their mortgages to a lender by collateral assignment, borrow against them, and get them back when the loan is paid. Also called note on note financing.
Under a land contract the seller keeps the deed, so there is no mortgage to assign and the buyer has no title. That makes the paper hard to sell, hard to borrow against, and messy on default. A note with a deed of trust does the same job cleanly.
Send it over. Written quote in about 24 hours on a note purchase, a land loan, or a loan against a pool of notes.
Private lender and direct land note buyer serving land investors and note holders nationwide. Featured on REtipster, Legends of Land, and Land Investing Online. LinkedIn →